General Electric in Numbers:
As an older and much more well-known company, we already know we should not be looking at General Electric in terms of a growth investment. Instead, we will scrutinize the balance sheet for evidence of sustainability and consistency.
Is it big enough?
To be considered a safe investment, a company must be large enough to withstand any fluctuations in market conditions. For this purpose, a big company is defined as one with a market cap of $1 billion or greater. General Electric’s market cap is $269.81 billion so it more than meets this requirement.
How has it been doing over the past 12 months?
Another factor to consider is the company’s trailing 12-month sales or how much it has made in sales over the immediately preceding 52 weeks (not necessarily fiscal year). General Electric has trailing 12-month sales of $145.19 billion, which is well above the mean of the market ($20.97 billion).
How much is it earning on a per-share basis?
A great indicator of a company’s strength is found in the amount of cash flow per share. This gives a more accurate picture since it takes both taxes and depreciation into account. The mean of the market at the moment is $1.62. A strong company will have a cash flow per share above this. With $2.59, General Electric is earning nearly double it on a per-share basis.
What is the current price level?
The stability of a company can be judged by the relative stability of its stock price. In this case, stability is defined as the current closing price being somewhere within a 15% range of the stock’s 52-week high. General Electric closed at $26.54 on Dec. 12, which is 3.49% below its 52-week high of $27.50. So it is within the necessary range to be considered a stable stock.
How does its price to earnings ratio hold up?
The always important price to earnings ratio (or P/E ratio) is often regarded as one of the most important factors when considering a stock for investment. When you are looking for a secure stock, a good rule of thumb is to look for a P/E ratio that is no more than three times the current mean P/E ratio of the market and absolutely never higher than 43.
The mean of the market right now is 15.0 and as of Dec. 12, General Electric has a P/E ratio of 18.99 which puts it well within the ideal range outlined above.
What about its price to sales ratio?
The price to sales ratio (or P/S ratio) is calculated by dividing the current price of the stock by the company’s revenue on a per-share basis. This gives potential buyers a sense of whether or not the value of the stock is strongly backed by corresponding revenue. To be a secure investment, the price to sales ratio should be 1.5 or below. At 1.86, the P/S ratio of General Electric is just above where we want it to be.
What percentage of its stock is insider owned?
A strong company should have a healthy percentage of its stock owned by people inside the company. Analysts differ on what the ideal percentage is with opinions ranging from a more conservative 10% all the way up to at least 25%. With just 0.04% of its outstanding stock insider owned, General Electric does not even meet the most conservative estimates.
How strong is the company relative to its competitors?
If you are looking for a secure investment, you want a company that is dominating its market. This means you should be cautious with any company which has a relative strength index (or RSI) of less than 80, meaning it controls at least 80% of its market. General Electric just barely comes up short here with a relative strength index of 78.
While there are some warning signs to be found, General Electric is, on the whole, a strong company with a sturdy foundation. This is a safe investment and a definite buy if you are looking for a secure stock in which your money can grow at a steady rate.